By Scott Moritz, Sara Forden and Serena Saitto - Nov 24, 2011 4:20 AM GMT+0700
AT&T Inc. (T) may be running out of options to win regulatory approval for its proposed $39 billion takeover of T-Mobile USA, forcing AT&T to choose whether to drop the bid or endure months of litigation with the U.S. government.
The Federal Communications Commission took a step toward opposing the deal yesterday, as Chairman Julius Genachowski asked commissioners to send the proposal to an agency judge for a hearing. Agency staff had found the proposed merger would significantly diminish competition and lead to job losses, said an official who spoke on the condition of anonymity.
AT&T may also be losing one possible option for addressing the concerns of the Justice Department, which sued in August to block the deal because it would reduce wireless competition. MetroPCS Communications Inc. (PCS), which has been negotiating to buy assets from AT&T and T-Mobile to become a more viable rival, isn’t interested in customers and spectrum in as many markets as AT&T needs to sell, said two people close to the situation who declined to be identified because the talks are private.
Odds are increasing that Dallas-based AT&T will have a long legal fight if it wants to salvage the deal, said Jeffrey Silva, an analyst at Medley Global Advisors LLC in Washington.
“The FCC and DOJ work hand in hand,” Silva said in a telephone interview. The FCC’s move “shows that AT&T has made no progress in the negotiations with the DOJ.”
Reviewing Options
AT&T said the FCC’s decision was disappointing and that it was “reviewing all options.”
“It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both,” Larry Solomon, an AT&T spokesman, said in a statement.
AT&T, the second-largest U.S. wireless operator, has said the T-Mobile deal would improve customer service because it would boost investments in higher-speed technologies and allow expansion into more rural areas. AT&T also said it needs T- Mobile’s spectrum to serve its 100.7 million customers as an increasing number use data-intensive smartphones.
“The decision disappoints because it doesn’t take into account the deal’s clear advantages for the U.S. market and economy,” said Philipp Kornstaedt, a spokesman for T-Mobile USA’s Bonn-based owner Deutsche Telekom AG. (DTE) “We’re now analyzing the new situation together with AT&T.”
Deutsche Telekom shares closed down 2.9 percent to 8.76 euros in Frankfurt. AT&T fell 1.9 percent to $27.55 at the close in New York.
Industry Concentration
FCC officials, during a background briefing with reporters yesterday, disputed AT&T’s claims that the transaction would create jobs and significantly spur the expansion of wireless high-speed Internet. Wireless industry concentration would increase in 99 of 100 markets, the official said.
The FCC’s commissioners may vote on Genachowski’s proposal for a hearing, which is akin to a trial, in the coming days. The administrative law judge presiding over the hearing delivers an initial decision that goes to agency commissioners for a vote.
“The FCC procedure is even farther-reaching than a court trial,” said Herbert Hovenkamp, a professor and antitrust expert at the University of Iowa College of Law. “This is like two tidal waves coming at AT&T, with the second one potentially even larger than the first.”
‘Significant Obstacle’
The order marks the first time since 2002 that the FCC has moved to bring a communications merger to a hearing before an agency judge, Andrew Lipman, a Washington-based partner with Bingham McCutchen LLP, said in an interview yesterday. The last transaction to face such a hearing was EchoStar Communications Corp.’s bid for fellow satellite company DirecTV (DTV), Lipman said. The companies eventually dropped their bid, he said.
“A hearing could go on for six to 12 months,” Lipman said. “It’s certainly a significant obstacle and roadblock.”
The FCC’s move comes as AT&T struggles to address the Justice Department’s objection to the proposed acquisition. AT&T has been trying to sell assets to soothe regulatory concerns that a reduction in nationwide providers to three from four would undermine competition. MetroPCS had emerged as the frontrunner to buy wireless spectrum and customers from AT&T and T-Mobile to bolster its position as a nationwide competitor, people familiar with the matter said last month.
MetroPCS Prospects
MetroPCS’s interest in buying a large chunk of the assets is now declining and Leap Wireless International (LEAP) is emerging as the most interested party in buying those assets, said the two people familiar with the situation. Deutsche Telekom is ready to finance either buyer, said the people.
Leap may be even less likely to replace T-Mobile as a fourth national competitor than MetroPCS. While T-Mobile had 33.7 million wireless subscribers at the end of September, MetroPCS had 9.1 million and Leap had 5.8 million. Leap also has fewer resources to buy assets, with $800 million in cash and short-term investments compared with $2.1 billion for MetroPCS.
Greg Lund, a Leap spokesman, declined to comment on any negotiations with AT&T. Diana Gold, a MetroPCS spokeswoman, didn’t immediately return a phone call for comment.
AT&T has agreed to pay Deutsche Telekom a breakup fee of $3 billion as well as spectrum if the deal collapses for a total package valued at as much as $7 billion.
“Too much money remains at stake for it to concede defeat and drop the deal,” Andrew Gavil, an antitrust professor at Howard University School of Law in Washington, said in an interview. “They’ve locked themselves in to take it to the mat.”
Still, it will be a struggle for AT&T to complete the deal given the increasing number of hurdles, said Stephen Axinn, an antitrust lawyer with Axinn Veltrop & Harkrider LLP in New York.
“The deal is not dead yet, but this is not a good day for AT&T,” Axinn said in an interview. “It becomes much more of a long shot now.”
To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net
To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Michael Shepard at mshepard7@bloomberg.net
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